A Project Report On

A PROJECT REPORT ON
A study of working capital management in small scale

industries
BY
RAVINDRA SINGH DHANIK
ROLL NO: 1402011897
MBA (BANKING & FINANCE)
“A study of Working Capital Management in small scale industries”
SIKKIM MANIPAL UNIVERSITY: PROJECT REPORT BY R. S. DHANIK 1402011897

A STUDY ON WORKING CAPITAL MANAGEMENT IN SMALL SCALE INDUSTRIES Page 1
A PROJECT REPORT
Under the guidance Of
Mrs Mamta Arya
Submitted by
RAINDRA SINGH DHANIK
in partial fulfilment o f the requirement
for the award of the degree
Of
MBA
IN
Banking & FINANCE
OCT 2017
ACKNOWLDGEMENT

I, RAVINDRA SINGH DHANIK, warmly thank all those without whom this project could
not have been completed. I THANKS TO GREAT ORGANISATION BANK OF BARODA
AND ITS ALL STAFF SPECIALLY MR. NETRA MANI (CHIEF MANAGER, ZO
BARIELLY), Mrs. Mamta Arya (SWO, Bhageshwar), MR. TRIPATHI
(MANAGER,HALDWANI MAIN), MISS RAJSHREE (OFFICER, DIDIHAT), MR. NITIN
GAUTEM (MANAGER,AGRA), MR. JAYANT RAWAT (MANAGER, AWAS VIKAS
RUDRAPUR), MRS KAVITA DHANIK. To all of them, I wish to convey my heartiest
gratitude.
I offer my gratitude and it is my privilege to acknowledge my indebtedness to esteeme for

THEIR constant support, guidance and help without which this project would not have lifted
off the ground.
BONAFIED CERTIFICATE

Certified that this project report titled “A STUDY OF WORKING CAPITAL
MANAGEMENT OF SMALL SCALE INDUSTRIES” is the bonafide work of
“MR. RAVINDRA SINGH DHANIK” who carried out the project work under
my supervision.
SIGNATURE SIGNATURE
HEAD OF THE DEPARTMENT FACULTY IN CHARGE
EXECUTIVE SUMMARY
I, RAVINDRA SINGH DHANIK, roll number 1402011897, MBA (4th Semester of the
SIKKIM MANIPAL UNIVERSITY, hereby declare that the project report titled “A STUDY
OF WORKING CAPITAL ASSESSEMENT OF SMALL SCALE INDUSTRIES” is an
original work and the same has not been submitted to any other institute for the reward of any
other degree.

Table of contents
Chapter no Title Page no
1 Introduction to msme 7
2 Msme ACT 2006 10
3 Small scale industries 12
4 WORKING CAPITAL 16
5 METHOD OF WC 17
ASSESSMENT

Signature: __________________________
RAVINDRA SINGH DHANIK
INTRODUCTION to MSMEs
The Micro, Small and Medium enterprises (MSMEs) have been accepted as the
engine of economic growth and for promoting equitable development in all over
the world. Let there be any category of countries (Developed, Developing and
Under Developed), the existence of MSMEs is inevitable. The major advantage of
the sector is its pivotal role through its contribution in Industrial output, Exports,
and majorly in Employment generation at low capital cost. The labour intensity
of the MSME sector is much higher than that of the large enterprises. The MSMEs
constitute over 90% of total enterprises in most of the economies and are
credited with generating the highest rates of employment growth and account
for a major share of industrial production and exports. In India, the MSMEs
contribution is highly remarkable in the overall industrial economy of the
country. In recent years the MSME sector has consistently registered higher
growth rate compared to the overall industrial sector. With its agility and
dynamism, the sector has shown admirable innovativeness and adaptability to
survive the recent economic downturn and recession. In Indian market, MSMEs
rapid growth could be seen as Indian entrepreneurs are making remarkable

progress in various Industries like Manufacturing, Precision Engineering Design,
Food Processing, Pharmaceutical, Textile & Garments, Retail, IT and ITES, Agro
and Service sector. The sector not only serves for urban market but also helps in
industrialization of rural and backward areas, reducing regional Imbalances and
assuring more equitable distribution of national income and wealth. MSMEs
complement large industries as ancillary units and contribute enormously to the
socioeconomic development of the country. MSMEs account for 45% of India’s
manufacturing output, about 40% of India’s total exports; employ about 73 mn
people in more than 31 mn units spread across the country, manufacture more
than 6,000 products ranging from traditional to high tech items (MSME report
2011). The report also projects the total production coming from the MSME
sector at 10,957.6 bn in FY11, an increase of more than 11% over the previous
year contribution. Though, MSMEs contribution is phenomenal in the growth of
Indian economy, Simultaneously, MSMEs are facing intense pressure and
constraints to sustain their competitiveness in globalized world. Some other
issues such as recession, low demand, finance, heavy competition from MNCs
etc. are becoming conspicuous dilemma to MSMEs in India. In this competitive
world, MSMEs need to be able to confront the increasing competition from
developed and emerging economies and to plug into the new market
opportunities, provided by these countries. There is a direct link between
internationalization and increased MSMEs performance. International activities
reinforce growth, enhance competitiveness and support the long term
sustainability of companies. Yet Indian MSMEs still depend largely on their
domestic markets despite the opportunities brought by the enlarged single
market and by globalization at large. De-reservation of items which were earlier
reserved for MSMEs, increasing competition by liberalizing the policies and
allowing foreign companies to operate in Indian market are some of the
emerging challenges before MSMEs. Internationalization strategy is studied in
this research as one of the important strategies for countering global challenges
for MSMEs. This term basically is not new; it has been studied by various

authors in different-different ways. Internationalization does not only mean
exporting but it compasses trade across the border, cross-border collaboration,
alliances, cross-cultural diversity and the different business environment beyond
the home country environment. So to counter the global competition and to
access the global market, internationalization strategy is become the need of the
hour for MSMEs to use all the opportunities created due to globalization. A
natural way of internationalization would be to first get involved in inward and
outward activities which are nothing but imports and exports. Relationships and
knowledge gathered from import activities could thus be used when the firm
engages in export activities (Welch and Luostarinen, 1993; Korhonen,
Luostarinen and Welch, 1996)..Recent research (Fletcher, R., 2001) into
internationalization has found that a majority of firms engage in both outward
(e.g. sales/export) and inward (e.g. import or access to knowledge) activities in
the international arena and try to understand the different business
environments in this early phase to become international firm. There are also
many enterprises which are inclined to born global concept, however this
emerging concept requires more capital investment at the initial phase of the
enterprises. Wherein the internationalization strategy goes through the steps
and the MSMEs could make their presence globally at low capital cost. This
research study is specifically done to analyze the actual process of
internationalization and for MSMEs right from preliminary work, market
research, and market entry to actually operating internationally along with the
challenges in the process. On the completion of this study the best strategies
and suggestions will be provided to MSMEs for expanding their business
internationally. For the purpose of this study the primary and secondary both
kind of data is been used so that the proper analysis could be done to justify the
problem statement of the study.
Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly
vibrant and dynamic sector of the Indian economy over the last six decades.
MSMEs not only play crucial role in providing large employment opportunities at

comparatively lower capital cost than large industries but also help in
industrialization of rural & backward areas, thereby, reducing regional
imbalances, assuring more equitable distribution of national income and wealth.
MSMEs are complementary to large industries as ancillary units and this sector
contributes enormously to the socio-economic development of the country.
Ministry of Micro, Small & Medium Enterprises (M/o MSME) envision a vibrant
MSME sector by promoting growth and development of the MSME Sector,
including Khadi, Village and Coir Industries, in cooperation with concerned
Ministries/Departments, State Governments and other Stakeholders, by
providing support to existing enterprises and encouraging creation of new
enterprises.
MICRO,SMALL & MEDIUM DEVELOPMENT (MSMED) ACT 2006
The government of india has enacted the Micro, Small & Medium enterprises
development (MSMED) act 2006 on June 2006, which was notified on October 2,
2006. With the enactment of MSMED act 2006, the paradigm shift that has taken
place is the inclusion of the service sector in the definition of Micro, Small &
Medium enterprises, apart from extending the scope to medium enterprises.
The MSMED Act, 2006 has modified the definition of micro, small and medium
enterprises engaged in manufacturing or production and providing or rendering
of services.
Definition of Micro, Small and Medium Enterprises:
a) Manufacturing Enterprises i.e. Enterprises engaged in the manufacture or
production, processing or preservation of goods and whose investment in
plant & machinery (original cost excluding land and building) as per table
provided below.
b) Service Enterprises i.e. Enterprises engaged in providing or rendering of service and whose
investment in equipment (original cost excluding land and building and furniture, fittings and
other items not directly related to the service rendered) as specified below:
Segment Manufacturing Service
Investment in P&M of Investment in
Manufacturing Unit Equipments of Service
Sector Unit
Micro Enterprises Up to Rs 25 Lacs Up to Rs. 10 Lacs
Small Enterprises Above Rs 25 Lacs and Above Rs 10 Lacs and
up to Rs 5.00 Crs. up to Rs 2.00 Crs.
Medium Enterprises Above Rs 5.00 Crs and Above Rs 2 Crs and
up to Rs 10.00 Crs. up to Rs 5.00 Crs.
Service Enterprises will include small road & Water transport operators,
Small Business, Retail Trade, Professional & Self employed persons and all
other service enterprises which satisfy the above criteria.
Objective & Necessity of MSMED Act
A single comprehensive act for development and regulation of small enterprises
had been a long outstanding demand of the Sector so as to free it from a
plethora of laws and regulations and visit of inspectors, which it had to face with
limited awareness and resources. The need has been emphasized from time to
time by stake holders at different fora. In addition, recommendations to provide
for a proper legal framework for small sector to relieve it of the requirements to
comply with multiple rules and regulations were made by the Committees such
as the Abid Hussain Committee (1997) and Study Group under Dr. S.P. Gupta
(2000). While the small scale industries continued to be important for the
economy, in the recent years the small scale services have also emerged as a
significant sector contributing substantially to the economy and employing
millions of workers. Therefore, it became necessary, as is the practice
worldwide, to address the concerns of both the small scale industries and
services together and recognize them as small enterprises. The worldwide as a
composite sector. In a fast growing economy like ours, the natural mobility of

small enterprises to medium ones has to be facilitated through appropriate
policy interventions and legal framework. With these objectives in view, the
Government came with an exclusive legislation for micro, small and medium
enterprises known as the Micro, Small and Medium Enterprises Development
Act, 2006.
Small-Scale Industries in India
In Indian economy small-scale and cottage industries occupy an important place,
because of their employment potential and their contribution to total industrial
output and exports.
Government of India has taken a number of steps to promote them. However,
with the recent measures, small-scale and cottage industries facing both internal
competition as well as external competition.
There is no clear distinction between small-scale and cottage industries.
However it is generally believed that cottage industry is one which is carried on
wholly or primarily with the help of the members of the family. As against this,
small-scale industry employs hired labour.
Moreover industries are generally associated with agriculture and provide
subsidiary employment in rural areas. As against this, small scale units are
mainly located in urban areas as separate establishments.
Definition:
The official definitions of a small scale unit are as follows:

(i) Small-Scale Industries:
These are the industrial undertakings having fixed investment in plant and
machinery, whether held on ownership basis or lease basis or hire purchase
basis not exceeding Rs. 1 crore.
(ii) Ancillary Industries:
These are industrial undertakings having fixed investment in plant and
machinery not exceeding Rs. 1 crore engaged in or proposed to engage in,
(a) The manufacture of parts, components, sub-assemblies, tooling or
intermediaries, or
(b) The rendering of services supplying 30 percent of their production or
services as the case may be, to other units for production of other articles.
(iii) Tiny Units:
These refer to undertakings having fixed investment in plant and machinery not
exceeding Rs. 23 lakhs. These also include undertakings providing services such
as laundry, Xeroxing, repairs and maintenance of customer equipment and
machinery, hatching and poultry etc. Located m towns with population less than
50,000.
(iv) Small-Scale Service Establishments:
These mean enterprises engaged in personal or household services in rural areas
and town with population not exceeding 50000 and having fixed investment in
plant and machinery not exceeding Rs. 25 lakhs.
(v) Household Industries:
These cover artisans skilled craftsman and technicians who can work in their
own houses if their work requires less than 300 square feet space, less than 1
Kw power, less than 5 workers and no pollution is caused. Handicrafts, toys,
dolls, small plastic and paper products electronic and electrical gadgets are some
examples of these industries.
Characteristics of Small-Scale Industries:
(i) Ownership:
Ownership of small scale unit is with one individual in sole-proprietorship or it
can be with a few individuals in partnership.
(ii) Management and control:
A small-scale unit is normally a one man show and even in case of partnership
the activities are mainly carried out by the active partner and the rest are
generally sleeping partners. These units are managed in a personalised fashion.
The owner is activity involved in all the decisions concerning business.
(iii) Area of operation:
The area of operation of small units is generally localised catering to the local or
regional demand. The overall resources at the disposal of small scale units are
limited and as a result of this, it is forced to confine its activities to the local
level.
(iv) Technology:
Small industries are fairly labour intensive with comparatively smaller capital
investment than the larger units. Therefore, these units are more suited for
economics where capital is scarce and there is abundant supply of labour.
(v) Gestation period:

Gestation period is that period after which teething problems are over and return
on investment starts. Gestation period of small scale unit is less as compared to
large scale unit.
(vi) Flexibility:
Small scale units as compared to large scale units are more change susceptible
and highly reactive and responsive to socio-economic conditions.
They are more flexible to adopt changes like new method of production,
introduction of new products etc.
(vii) Resources:
Small scale units use local or indigenous resources and as such can be located
anywhere subject to the availability of these resources like labour and raw
materials.
(viii) Dispersal of units:
Small scale units use local resources and can be dispersed over a wide territory.
The development of small scale units in rural and backward areas promotes
more balanced regional development and can prevent the influx of job seekers
from rural areas to cities.
Objectives of Small Scale Industries:
The objectives of small scale industries are:
1. To create more employment opportunities with less investment.
2. To remove economic backwardness of rural and less developed regions of the
economy.
3. To reduce regional imbalances.

4. To mobilise and ensure optimum utilisation of unexploited resources of the
country.
5. To improve standard of living of people.
6. To ensure equitable distribution of income and wealth.
7. To solve unemployment problem.
8. To attain self-reliance.
9. To adopt latest technology aimed at producing better quality products at
lower costs.
WORKING CAPITAL
Working capital (WC) is a financial metric which represents operating
liquidity available to a business, organisation or other entity, including
governmental entity. Along with fixed assets such as plant and equipment,
working capital is considered a part of operating capital.
Gross working capital is equal to current assets. Working capital is calculated
as current assets minus current liabilities.If current assets are less than current
liabilities, an entity has a working capital deficiency, also called a working capital
deficit.
A company can be endowed with assets and profitability but short of liquidity if
its assets cannot readily be converted into cash. Positive working capital is
required to ensure that a firm is able to continue its operations and that it has
sufficient funds to satisfy both maturing short-term debt and upcoming
operational expenses. The management of working capital involves managing
inventories, accounts receivable and payable, and cash.
Calculation
Working capital is the difference between the current assets and the current
liabilities.
The basic calculation of the working capital is done on the basis of the gross
current assets of the firm.

Inputs
Current assets and current liabilities include three accounts which are of special
importance. These accounts represent the areas of the business where
managers have the most direct impact:
 accounts receivable (current asset)

 inventory (current assets), and
 accounts payable (current liability)
The current portion of debt (payable within 12 months) is critical, because it

represents a short-term claim to current assets and is often secured by long-
term assets. Common types of short-term debt are bank loans and lines of
credit.
An increase in net working capital indicates that the business has either
increased current assets (that it has increased its receivables, or other current
assets) or has decreased current liabilities—for example has paid off some short-
term creditors, or a combination of both.
Working capital cycle Definition

The working capital cycle (WCC) is the amount of time it takes to turn the net
current assets and current liabilities into cash. The longer the cycle is, the longer
a business is tying up capital in its working capital without earning a return on it.
Therefore, companies strive to reduce their working capital cycle by collecting
receivables quicker or sometimes stretching accounts payable.
Meaning
A positive working capital cycle balances incoming and outgoing payments to
minimize net working capital and maximize free cash flow. For example, a
company that pays its suppliers in 30 days but takes 60 days to collect its
receivables has a working capital cycle of 30 days. This 30-day cycle usually
needs to be funded through a bank operating line, and the interest on this
financing is a carrying cost that reduces the company's profitability. Growing
businesses require cash, and being able to free up cash by shortening the
working capital cycle is the most inexpensive way to grow. Sophisticated buyers
review closely a target's working capital cycle because it provides them with an
idea of the management's effectiveness at managing their balance sheet and
generating free cash flows.
As an absolute rule of funders, each of them wants to see a positive working
capital. Such situation gives them the possibility to think that your company has
more than enough current assets to cover financial obligations. Though, the
same can’t be said about the negative working capital. [2] A large number of
funders believe that businesses can’t be sustainable with a negative working
capital, which is a wrong way of thinking. In order to run a sustainable business
with a negative working capital it’s essential to understand some key
components.
1. Approach your suppliers and persuade them to let you purchase the inventory
on 1-2 month credit terms, but keep in mind that you must sell the purchased
goods, to consumers, for money.

2. Effectively monitor your inventory management, make sure that it’s often
refilled and with the help of your supplier, back up your warehouse.
Plus, big companies like McDonald’s, Amazon, Dell, General Electric and Wal-
Mart are using negative working capital.
Decisions relating to working capital and short-term financing are referred to
as working capital management. These involve managing the relationship
between a firm's short-term assets and its short-term liabilities. The goal of
working capital management is to ensure that the firm is able to continue
its operations and that it has sufficient cash flow to satisfy both maturing short-
term debt and upcoming operational expenses.
A managerial accounting strategy focusing on maintaining efficient levels of both
components of working capital, current assets and current liabilities, in respect
to each other. Working capital management ensures a company has sufficient
cash flow in order to meet its short-term debt obligations and operating
expenses.
Decision criteria By definition, working capital management entails short-term
decisions—generally, relating to the next one-year period—which are
"reversible". These decisions are therefore not taken on the same basis as
capital-investment decisions (NPV or related, as above); rather, they will be
based on cash flows, or profitability, or both.
One measure of cash flow is provided by the cash conversion cycle—the net

number of days from the outlay of cash for raw material to receiving
payment from the customer. As a management tool, this metric makes
explicit the inter-relatedness of decisions relating to inventories, accounts
receivable and payable, and cash. Because this number effectively
corresponds to the time that the firm's cash is tied up in operations and
unavailable for other activities, management generally aims at a low net
count.
 In this context, the most useful measure of profitability is return on

capital (ROC). The result is shown as a percentage, determined by dividing
relevant income for the 12 months by capital employed; return on
equity (ROE) shows this result for the firm's shareholders. Firm value is
enhanced when, and if, the return on capital, which results from working-
capital management, exceeds the cost of capital, which results from capital
investment decisions as above. ROC measures are therefore useful as a
management tool, in that they link short-term policy with long-term decision
making. See economic value added (EVA).
 Credit policy of the firm: Another factor affecting working capital
management is credit policy of the firm. It includes buying of raw material
and selling of finished goods either in cash or on credit. This affects the cash
conversion cycle.

Management of working capital
Guided by the above criteria, management will use a combination of policies and
techniques for the management of working capital. The policies aim at managing
the current assets (generally cash and cash
equivalents, inventories and debtors) and the short-term financing, such
that cash flows and returns are acceptable.
 Cash management. Identify the cash balance which allows for the
business to meet day to day expenses, but reduces cash holding costs.
 Inventory management. Identify the level of inventory which allows for
uninterrupted production but reduces the investment in raw materials—and
minimizes reordering costs—and hence increases cash flow. Besides this, the
lead times in production should be lowered to reduce Work in Process
(WIP) and similarly, the Finished Goods should be kept on as low level as
possible to avoid over production—see Supply chain management; Just In
Time (JIT); Economic order quantity (EOQ); Economic quantity
 Debtors management. Identify the appropriate credit policy, i.e. credit

terms which will attract customers, such that any impact on cash flows and
the cash conversion cycle will be offset by increased revenue and hence
Return on Capital (or vice versa); see Discounts and allowances.
 Short-term financing. Identify the appropriate source of financing, given

the cash conversion cycle: the inventory is ideally financed by credit granted
by the supplier; however, it may be necessary to utilize a bank loan (or
overdraft), or to "convert debtors to cash" through "factoring
Methods of Working capital assessment
•Operating Cycle Method

•Drawing Power Method.
•Turnover Method.
•MPBF method (II method of lending) for limits of Rs 6.00 crores and
above
• Cash Budget method - Based on procurement and cash inflow) . It is
mainly used for Seasonal Industries (Sugar/ Rice
Mills/Textiles/Tea/Tobacco/Fertilizers) Contractors & Real Estate
Developers , Educational Institutions, etc.
Operating Cycle Method

Meaning of operating cycle:
It begins with acquisition of raw materials and ends with collection of

receivables.
Stages:
• 1)Raw materials (RM/RM consumption)

2)Work-in-process (WIP/COP)
3)Finished Goods (FG/COS)
4)Receivables (Debtors/Credit sales)
Less:
• Creditors (creditors/purchases)
Example of Operating Cycle:
Length of operating Cycle:
a. Procurement of raw material : 30 days

b. Conversion/process time : 15 days
c. Average time of holding of finished goods: 15 days
d. Average collection period : 30 days
e. Total operating cycle : 90 days
f. Operating cycle in a year : 4
g. Total operating expenses per annum : Rs.60 lacs
h. Total turnover per annum : Rs.70 lacs
i. Working capital requirement : 60/4= 15 lacs
Drawing Power (DP) Method :

(for units with small limits)
Drawing power is arrived at on the basis of valuation of current assets charged

to the bank in the shape of hypothecation and assignment , after deducting
the stipulated margin
Illustration:

Paid stock – 4 Margin 25% - DP = 3
Semi-finished goods – 4 Margin 50% - DP=2
Finished goods -4 Margin 25% - DP = 3
Book Debts – 4 Margin 50% - DP = 2
Total DP= 10
Turnover Method :
(originally suggested by Nayak Committee for SSI units)
The WC requirements may be worked out on the basis of Naik Committee

recommendations for working capital limit upto Rs.6 crores from the banking
system, on the basis of minimum of 20% of their projected annual turnover for
new as well as existing units, beyond which WC be computed on the basis of
WC cycle, after fixing stipulated margins , on each component of the WC. In
case of borrowers desiring facilities under Naik Committee recommendations
and having a WC cycle of more than 3 months in a year, the WC requirements
will be funded after assessing his requirements on the basis of his WC cycle,
after fixing proper margins.
Example:
Applicable for limits upto Rs.6 crores :
(a) Projected sales = Rs. 10,00,000

(b) Working capital requirements: 25% of projected sales i.e. Rs.2,50,000
(c) Margin (contribution of Owner) : 5% of projected sales i.e. Rs.50,000
(d) Working capital to be funded by bank : Rs.2,00,000

MPBF Method
(Tandon’s II method of lending)
• Working capital gap : Current assets – current liabilities (other than bank
borrowings)
• Minimum stipulated net working capital= 25% of current assets
(excluding exports receivables)
• Actual projected NWC


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A PROJECT REPORT ON

A study of working capital management in small scale

RAVINDRA SINGH DHANIK

ROLL NO: 1402011897

MBA (BANKING & FINANCE)

“A study of Working Capital Management in small scale industries”

SIKKIM MANIPAL UNIVERSITY: PROJECT REPORT BY R. S. DHANIK 1402011897

Under the guidance Of

Mrs Mamta Arya

RAINDRA SINGH DHANIK

in partial fulfilment o f the requirement

for the award of the degree

Banking & FINANCE

SIKKIM MANIPAL UNIVERSITY: PROJECT REPORT BY R. S. DHANIK 1402011897

I offer my gratitude and it is my privilege to acknowledge my indebtedness to esteeme for

SIKKIM MANIPAL UNIVERSITY: PROJECT REPORT BY R. S. DHANIK 1402011897

HEAD OF THE DEPARTMENT FACULTY IN CHARGE

SIKKIM MANIPAL UNIVERSITY: PROJECT REPORT BY R. S. DHANIK 1402011897

Chapter no Title Page no

2 Msme ACT 2006 10

3 Small scale industries 12

SIKKIM MANIPAL UNIVERSITY: PROJECT REPORT BY R. S. DHANIK 1402011897

RAVINDRA SINGH DHANIK

Under Developed), the existence of MSMEs is inevitable. The major advantage of

contribution is highly remarkable in the overall industrial economy of the

dynamism, the sector has shown admirable innovativeness and adaptability to

rapid growth could be seen as Indian entrepreneurs are making remarkable

SIKKIM MANIPAL UNIVERSITY: PROJECT REPORT BY R. S. DHANIK 1402011897

industrialization of rural and backward areas, reducing regional Imbalances and

assuring more equitable distribution of national income and wealth. MSMEs

complement large industries as ancillary units and contribute enormously to the

socioeconomic development of the country. MSMEs account for 45% of India’s

manufacturing output, about 40% of India’s total exports; employ about 73 mn

year contribution. Though, MSMEs contribution is phenomenal in the growth of

Indian economy, Simultaneously, MSMEs are facing intense pressure and

constraints to sustain their competitiveness in globalized world. Some other

etc. are becoming conspicuous dilemma to MSMEs in India. In this competitive

world, MSMEs need to be able to confront the increasing competition from

opportunities, provided by these countries. There is a direct link between

internationalization and increased MSMEs performance. International activities

reinforce growth, enhance competitiveness and support the long term

sustainability of companies. Yet Indian MSMEs still depend largely on their

domestic markets despite the opportunities brought by the enlarged single

market and by globalization at large. De-reservation of items which were earlier

reserved for MSMEs, increasing competition by liberalizing the policies and

allowing foreign companies to operate in Indian market are some of the

emerging challenges before MSMEs. Internationalization strategy is studied in

SIKKIM MANIPAL UNIVERSITY: PROJECT REPORT BY R. S. DHANIK 1402011897

exporting but it compasses trade across the border, cross-border collaboration,

alliances, cross-cultural diversity and the different business environment beyond

the home country environment. So to counter the global competition and to

natural way of internationalization would be to first get involved in inward and

engages in export activities (Welch and Luostarinen, 1993; Korhonen,

Luostarinen and Welch, 1996)..Recent research (Fletcher, R., 2001) into

internationalization has found that a majority of firms engage in both outward

(e.g. sales/export) and inward (e.g. import or access to knowledge) activities in

the international arena and try to understand the different business

enterprises. Wherein the internationalization strategy goes through the steps

research study is specifically done to analyze the actual process of

internationalization and for MSMEs right from preliminary work, market

and suggestions will be provided to MSMEs for expanding their business

problem statement of the study.

SIKKIM MANIPAL UNIVERSITY: PROJECT REPORT BY R. S. DHANIK 1402011897

industrialization of rural & backward areas, thereby, reducing regional